Amazon Logistics Research Paper

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Introduction

When the Internet was first established, few had the foresight of Jeff Bezos to envision a world where all shopping would be done online. Bezos started Amazon in the 1990s to sell books online. Soon he began expanding the company’s vision until it became the monster of e-commerce that it is today. However, in order for Amazon to work it has to have a very good global logistics operation in place. This paper will discuss how Amazon manages its global logistics, business and trade operations to maintain its competitive advantage over its conventional rivals. The report will also include a discussion of whether Amazon can continue to leverage or expand on its current business strategy. The findings will expose pitfalls and trade-offs that Amazon will need to consider going forward.

Background

Amazon was founded in 1994 by Jeff Bezos, who initially wanted the site to focus on selling goods that were most in demand among e-commerce shoppers: these were videos, books and CDs plus computers and laptops. Overtime, Amazon began focusing on more and more products to offer and gradually brick and mortar businesses began to notice a sharp decline in sales. People were now buying clothing, accessories, cosmetics, virtually everything and anything through Amazon. Amazon would ship the product directly to the person’s door and the individual would not have to leave, deal with traffic or people to get the good. Amazon began offering a membership that allowed for free and fast shipping, and they offered streaming of videos via Amazon Prime. Amazon expanded into Amazon Web Services (AWS), which is really what made the company profitable in recent years. As Lebeda, Zalatoris and Scheerer (2018) point out, “Since 2009, plans and policies were developed for the use of cloud technology to help consolidate and reduce the number of data centers which were expected to reduce costs, improve environmental factors, enhance information technology security, and maintain mission support for service members.” Thus AWS has become a major player in providing cloud services for governments and agencies like the Pentagon. The market is intensely growing as more and more companies rely on Big Data and data processing. Cloud computing provides all the solutions for these industries and the industry is thus poised to continue growing exponentially, as AWS sales shows. AWS is in a prime position to continue to profit substantially: its size and position in the industry make it one of the top players and its good relationship with the Pentagon puts it in a position to capture a lucrative cloud computing services contract over the next several years. Other players like Oracle are competing for just this type of contract but establishing the clout, reputation and relationships are pivotal to gaining access.

The logistics and trade elements required in Amazon’s business consist of a various network of supply-shipping-warehousing and distribution centers around the world. As Zur (2018) points out, Amazon “is building its own end-to-end delivery network, from purchase of items on its website to delivery to its customer doors.” Amazon is focusing on becoming a vertically integrated company that handles every aspect of its own business—from taking orders to shipping to warehousing to delivery. The process is ongoing: “Since 2014, the e-commerce giant has been spending heavily on airplanes (it now reportedly leases 40 of them), truck trailers (it now owns thousands of which) self-service lockers (it now has over 6000 of them) and fulfillment, sorting and distribution centers in every major metropolitan area in the US (as of May 2018 it operates 328 such centers domestically, and 708 worldwide with 55 future facilities). This massive investment has given rise to speculations that Amazon is planning to eventually take on its delivery partners FedEx and UPS” (Zur, 2018). In short, Amazon is aiming to be the everything company, and that means its global logistics will depend on no one but itself. It will be its own supplier, shipper, and delivery service. To make this work, however, Amazon has to take on rivals like FedEx and UPS. It has already entered into the grocery business through its acquisition of Whole Foods in the U.S. This gives it even more leverage to tackle various industries and drive them into submission as Amazon undermines their costs in order to gain market share. However, if AWS begins to crack or if its lucrative government deals dry up, Amazon could be on the hook for running an expansive company that cannot turn a profit without AWS. As Bezos first imagined, by handling all aspects of ordering, selling, shipping, receiving and delivery, Amazon would be the everything of all things, as his own sketch illustrates below in Figure 1.
Figure 1. The image comes straight from Amazon?—?originally it was a napkin sketch by Jeff Bezos (Zur, 2018).

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Global Logistics, Business and Trade Initiatives

There are six factors that affect global logistics and that Amazon has had to consider carefully in developing its business model and the organization of its approach to shipping, receiving, and delivering. These are:

· Cost—which refers to the costs of establishing channels of distribution, both direct and indirect costs.

· Capital—which refers to the amount of capital required to maintain the distribution channel, especially with respect to costs added to the product as a result of expenses accrued through problems or inefficiencies in the distribution network, which could harm the company’s reputation.

· Control—which refers to the level of control that the company can have over the distribution channel; typically, the more control the company wields, the higher the expense.

· Coverage—which refers to the extent to which a local distribution network is able to reach the various markets in the country; for a company looking to establish transport and distribution channels in a foreign country, the logistics of where channels lead and whether there are transports available to move from one market to the next would have to be decided.

· Character—which refers to the trustworthiness…

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…shipping, Amazon aims to undercut all competitors so that it is the lone source of everything on the planet. To keep going, however, it depends on AWS, as this is what is keeping investors satisfied for now.

Figure 3. Amazon’s net shipping costs have gone up five-fold between 2010 to 2016 (in million U.S. dollars); Source: Statista 2017

Past Trends and Future Sustainability

Amazon is more and more looking to invest in drone technology to handle last mile delivery. Currently it relies upon third parties for last mile delivery, such as the USPS in the U.S., and while it gets discount delivery through the USPS, it could save using drone technology. The trend towards incorporating AI in just about every way possible is one that Amazon has been using to transform itself into the e-commerce titan that it now is. Using technology to advance its delivery model (drone tech for last mile delivery is one example, and digitization of the warehousing model is another). Algorithms drive its web site and constantly keep prices low as compared to competitors so that Amazon is the first stop for all shoppers. These are the trends that have driven past and present initiatives.

Future initiatives to sustain the company will be the expansion of AWS services, without which there will be no prop to keep the company attractive to investors as a growth company. Another initiative will be to expand its usage of the Internet of Things so as to combine Alexa with devices that consume a person’s life—from the smart phone to the laptop computer to the car to the home. The Internet of Things is an example of the future of AI and digitization. Amazon will likely incorporate these initiatives into its website platform, which already offers streaming of films and music for subscribers to its Prime platform.

Amazon may also be interested in advancing the initiative to bring self-driving delivery vehicles to market. Tesla is the company currently leading the pace in this respect, but other companies such as Google and Uber have begun looking at bringing the autonomous vehicle to market. If Amazon can compete here, it could truly transform last mile delivery and not be required to rely on drone technology or third party services for last mile delivery any longer.

A recommendation that the company could consider to enhance its business would be to continue to find ways to cut costs for its website and to get its e-commerce margins up. It is unlikely that Amazon will be able to underprice all competitors out of business, so it will have to settle for providing excellent customer service and working with smaller retailers to bring their products to market. Amazon should strive to get customers to sign up for Amazon Prime and retain them year over year. It should also work on enhancing its brand as the company is now being seen as a goliath devouring mom and pop stores and threatening to put every….....

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